Cryptocurrencies are already very complex as it is, but then to complicate things even further, there are subdivisions or ‘sets’ of certain cryptocurrencies that are compiled based on their qualities. There are cryptocurrencies that focus on decentralization, some that focus on centralization, others that run on one blockchain, and a whole lot more. However, in any case, the core type of ‘sub’ cryptocurrency that you should know if you want to call it that, is the ERC20 token model. At first glance, that might look like a very confusing concept, but rest assured, we’re going to walk you through the ERC20 model and break it down to where you can see how everyday users have become millionaires using ERC20 tokens.[no_toc]
This guide will overview not only what ERC20 tokens are, but also how you can buy them and what their underlying purpose is. We’ll compare ERC20 tokens to other types of cryptocurrencies, and we’ll even go over some of the most well-known ERC20 tokens in the industry (You might be surprised which ones are ERC20-based). As ERC20 tokens are a sub-concept of cryptocurrencies, we advise that if you’re not entirely familiar with cryptocurrencies to review our guide on how to buy cryptocurrency, and refresh your memory on the basic concepts of cryptocurrency.
What Are ERC20 Tokens?
ERC20 tokens are put simply, a specific form of a cryptocurrency. First, let’s overview what a cryptocurrency is; it’s a form of digitized value that can be sent and received to a number of different parties on the internet. Bitcoin was the first mainstream cryptocurrency that we know of in present-day terms. It delivered the concept of online value transfer, but it wasn’t perfect, and it generally had multiple parameters that could be improved upon. Subsequently, Ethereum was born, an entire infrastructure for not only decentralized applications but smaller, more customizable and configurable cryptocurrencies. These smaller, more configurable cryptocurrencies are, you guessed it, known as ERC20 tokens.
In their most basic sense, ERC20 tokens are cryptocurrencies that are created, launched, and deployed strictly using the Ethereum blockchain. When Ethereum created their platform, they came up with ERC20 as an entire individual protocol. Within this ERC20 protocol, they said that in order for a token to be existent on our blockchain, it needs to 1.) Run on what is called a ‘smart contract’ 2.) Have a token ‘name’ 3.) Have a token’ symbol on the blockchain that people can refer to it as, and 4.) Have a supply (Equivalent simply to a number of tokens that will exist).
Now, that’s a lot to take in at once, so let’s break it down bit by bit.
➡️An ERC20 token is a cryptocurrency. In order for a cryptocurrency to be an ERC20 token, the first step is that the crypto has to be developed on the Ethereum blockchain.
➡️The next step for a crypto to be an ERC20 token is that it has to run on a smart contract. Smart contracts aren’t new concepts, but they were popularized with Ethereum. On Ethereum, you can code smart contracts that are agreements entered into by two parties that essentially validates a process, and is then confirmed as legitimate by the entire blockchain. In this case, the two parties are 1.) The sender of the ERC20 token and 2.) The receiver. An ERC20 has to be built on an Ethereum-based smart contract that ensures legitimacy.
➡️Classification as an ERC20 token requires a programmed token name and symbol; this is simply the preprogrammed name and representation of the asset, that’s it. Let’s take the most common example: Ethereum’s solidified name, is Ethereum, and its symbol is ‘ETH’.
➡️ERC20 tokens can serve a multitude of different industries, purposes, and niches. As long as the cryptocurrency in question hits the aforementioned parameters, it’s classified as an ERC20 token.
Examples of ERC20 Tokens
ERC20 tokens come in all shapes and sizes; it’s possible that you might even know of a few tokens and don’t even know it. Here are the 5 most popular ERC20 tokens at the time of this writing:
As demonstrated, one of the most popular crypto exchanges, Binance, runs a proprietary ERC20 token. Additionally, tokens such as BAT are led by former founders of internet revolutions such as Mozilla. Additionally, cryptocurrencies such as Tron (TRX), were initially ERC20 tokens before switching over to their own blockchain.
Additionally, many stable coins are ERC20 tokens. For example, the Paxos Standard (PAX) which is a cryptocurrency that is pegged on a 1:1 basis to the United States Dollar is running on the Ethereum blockchain as an ERC20 token.
Advantages and Disadvantages of ERC20 Tokens
- They can be created fairly easily, and the ERC20 framework is very intuitive.
- ERC20 tokens run upon a verified, and reliant blockchain with an extensive track record. This gives you more access to legacy blockchain users.
- The ERC20 community is quite various, so there’s a lot of connections to make in the overall atmosphere.
- ERC20 tokens have a finite, easy to follow the framework. The protocols behind them have a lot of documentation.
- ERC20 tokens are widely considered one of the most decentralized models available because of their absolute transparency.
- ERC20 tokens run on the Ethereum blockchain, and unfortunately, the Ethereum blockchain has had recent trouble upscaling, meaning that transactions are slow.
- ERC20 tokens can impose multiple fees; in the case of a very congested blockchain, the fees can be very high.
- While they have an incomparable track record, ERC20 tokens are fairly slow when being sent to one user to another.
How To Use ERC20 Tokens
Using ERC20 tokens, or any cryptocurrency for that matter, for the first time can definitely be nerve wracking, so as a result, we’re here to guide you through the process. ERC20 tokens are used by being sent from one ERC20 supported wallet and being received by another ERC20 supported wallet. In this case, it is absolutely imperative that you ensure you’re using an ERC20 supported wallet when receiving those tokens. If you’re not, and you send someone a non-ERC20 supported asset, there’s a high chance that those funds will be lost forever due to the nature of the blockchain.
The first step is to acquire an Ethereum wallet that is ERC20 supported. Check out our guide for Ethereum wallets here for not only finding the proper Ethereum wallets, but also how to use them in the most efficient ways possible.
The next step for using ERC20 tokens is to determine 1.) How much worth of the ERC20 token you want to send (If that’s what you’re intending to do), and also 2.) Where you want to send the ERC20 token. Prior to doing this, however, you’re going to have to retrieve the Ethereum address (That is subsequently ERC20 supported), to send the tokens to. This will in all cases start with “0x….”.
Once the address for the ERC20 wallet has been input, simply specify how much of the token you want to send, and press “Send”. This will then, in most cases, prompt a new warning/alert sign where you’ll be asked to verify and confirm the details of the transaction. Review, and if it suffices, press “Confirm”. Then, the tokens will be sent to the other party.
Step-by-step Guide: Get Started with ERC20 Tokens On MyEtherWallet
Now, with a general idea of how ERC20 tokens are used and how we can maneuver them, let’s take a real-life application of using ERC20 tokens. If we are speaking solely with importance being held to ERC20 tokens, then we highly suggest pursuing MyEtherWallet.com for your main usage. We also advise that you do your own due diligence on any broker or wallet that you use, and use their platforms with a very high adherence to security, password and data protection, and the like. Let’s get started.
Create a MyEtherWallet Account
Head to the main MyEtherWallet website and ensure you’re not on a phishing site: The only main URL address for MyEtherWallet is “http://www.myetherwallet.com/” – once here, select the option near the bottom that says “Create a New Wallet” as shown here:
Once selected, you’ll be prompted with a new page that will subsequently ask how you’d like to create your new account. This can be done in a variety of different ways, however, namely, you’ll be able to create a wallet via the “MEW Connect” app on your mobile device. This is the most recommended way. You can skip this option and opt with a private file storage option (Which is pursued via a secret file that you use to open your wallet, but is not recommended), or a mnemonic seed (A string of words in a unique order that represent ownership in your account: Also not recommended).
Once you’ve selected your preferred option, you’ll simply follow the on-screen instructions as they’re presented to you. Then, you’ll be able to access your new MEW through the method you selected.
Swap ERC20 Tokens
All of the assets and tokens that are listed on MyEtherWallet are ERC20 supported; in the case that they are not, it will be very heavily emphasized, since MyEtherWallet has for quite some time been deemed the largest outlet for using ERC20 tokens.
To swap ERC20 tokens, you can do exactly so by logging into the new platform and then on the left-hand side of the platform, selecting the ‘Swap’ button.
The following page will appear:
MyEtherWallet will then as a result, seamlessly be able to swap any of your ERC20 tokens for the calculated equivalent on the platform. All of the supported assets on the platform are ERC20, which means that you don’t have to worry about something not being ERC20-supported, at least inclusively on the platform.
ERC20 Tokens: Their Structure
Since we now have a better and more in-depth understanding of ERC20 tokens and how they work, let’s now overview their structure to get a better understanding of their functionality. ERC20 tokens are, as we’ve demonstrated, a protocol for the Ethereum blockchain exclusively. This means that all the functionalities of this token are applied on the Ethereum blockchain.
To delve even deeper into this concept, this means that ERC20 tokens function almost exactly like Ether does. ERC20 tokens need fuel or gas, known by denominations of “Gwei” on the Ethereum blockchain.
This is almost exactly parallel to how Ether runs. Gas is referenced as the small denominations of Ether that can almost be equivalent to a ‘fee’ for sending or running your Ethereum process –> ERC20 tokens are subsequently, an Ethereum process. Therefore, with every transaction you make via these tokens, you have to allocate a small amount of Ether to the network. This is just how the network was structured, and as a result, the fee for placing a transaction on this blockchain may increase at times.
Additionally, to review, let’s overview the structure of how ERC20 tokens will essentially function; keep in mind that ERC20 tokens are above all, cryptocurrencies that run exclusively on the Ethereum blockchain, but can in some rare cases interact with other blockchains.
Bitcoin started as the first mainstream retail cryptocurrency that we refer to within today’s technological standards. It remained as so, until Ethereum took the Bitcoin blockchain, and derived a new concept of Ethereum. With Ethereum now in place, Ethereum established a platform where developers could come and develop their own cryptocurrencies on the Ethereum blockchain, known as ERC20 tokens. Take the following graph into consideration:
Both Ethereum and ERC20 tokens run on the Ethereum blockchain. However, Bitcoin and Ethereum do not run on the same blockchain. There are also a few additional parameters that are thrown into the mix that might confuse many people:
- Ethereum wallets cannot accept Bitcoin
- Bitcoin wallets cannot accept Ethereum or ERC20 tokens
- ERC20 wallets can always accept Ethereum
- ERC20 wallets can never accept Bitcoin
- Ethereum wallets can in most cases accept all ERC20 tokens (Always check with your provider)
This means that if you were to send an ERC20 token, like Binance Coin (BNB) to a Bitcoin wallet, you would have wasted your transaction. The money would be lost forever. In many cases, the Ethereum wallet of your choice will have ERC20 support, however, it’s always best to double check with them prior to any type of sensitive transaction.
Best ERC20 Token Tools/Platforms
MyEtherWallet is in our opinion, one of the strongest, most viable platforms and outlets for you to use as far as ownership, usability, and maintenance of your ERC20 tokens. The platform is great because of its exclusivity and adherence to the ERC20 token standard.
MyEtherWallet is an online wallet platform that is built exclusively for Ethereum and ERC20 tokens. It offers the ability for storage, exchange, direct swap, and usability in any and all ERC20 tokens. While there is a ‘verified’ section, users can add any type of ERC20 token beforehand.
MyEtherWallet has a direct swap featured, that is partnered with the Kyber Network that allows users of MyEtherWallet to swap any of their inclusively held Ether or ERC20 tokens directly to another Ethereum-type asset. The process is very quick and easy.
Previously MEW has fallen victim to hacks, but has since implemented protocols that place the trust and safety of the user information and data that they process directly in the hands of the users themselves. As a result, it’s imperative to use your own due diligence and proper security protocols.
MetaMask is a web browser extension and a direct implementation for Chrome, FireFox, BRAVE, and a few others, that essentially links you to the Ethereum network directly on your web browser. The platform is a great addition for cryptocurrency users, especially those who are looking to delve in ERC20 tokens due to its extensive features that work with Ethereum-based tokens.
MetaMask lets you add your own custom ERC20 tokens and run them on both test networks and live networks, both depending on your preference.
When using Ethereum DApps, which are often powered by underlying ERC20 tokens, you additionally need a bridge or direct link to the Ethereum network, which is offered through the usage of MetaMask.
ERC20 tokens are complex concepts to truly grasp at first, especially for beginners. As a result, ensure you follow this guide very carefully, and be sure to ask us any questions that you might have about them! We’re very happy to help and will be sure to answer your questions as fast as possible.
Additionally, stay up to date with ERC20 tokens and Ethereum by subscribing to our site. On our platform, you can keep up to date on all of the latest developments in cryptocurrency and blockchain.
Are ERC20 tokens legal?
ERC20 tokens are a type of cryptocurrency framework; this means that as a whole, their concept is legal, but some developers may use the framework for illegal things. ERC20 standard, itself, is not illegal.
What is the best place to buy ERC20 tokens?
We generally recommend Binance, IDEX for buying ERC20 tokens.
Which ERC20 tokens are the best?
This is a very subjective, and situation-based question; many ERC20 tokens are best for certain instances. Currently, however, the most used and most popular ERC20 token is the Binance Coin, otherwise known as BNB.
Can I buy ERC20 tokens using fiat currency?
Yes, as a matter of fact, you can buy ERC20 tokens using fiat currency. In this case, you'll have to use a broker or platform like Coinbase where you can directly deposit fiat currency to use for cryptocurrency purchase.
Are ERC20 tokens unhackable?
Not necessarily, no. ERC20 tokens can in some cases be hacked, however, they are 'hacked' in a way that is not the same way that websites or applications are hacked. As a result, it's important to make sure the team behind the ERC20 token you're buying is as well-rounded and trustworthy as possible.